Tuesday, February 28, 2017

Ruling of the Week: 2017.7: Our Lady of Guadalupe in Wood

Customs law is an interesting practice because we get to see all of the interesting things that come into the country. Granted, a lot of it is pieces of machinery, chemicals, and goods for resale. Now and again, something strange or unexpected shows up. Couple that with my belief that the Harmonized Tariff Schedule of the United States provides the legal means of determining important philosophical questions such as whether something is art or is holy. These questions are, sort of, the issue in HQ H136955 (Aug. 6, 2014), which for some reason was only recently published.

The merchandise at issue is the 3/4 round depiction of Our Lady of Guadalupe with surrounding rays of light. The issue is whether this is a statuette or ornament of wood of HTSUS heading 4420, an original sculpture of Heading 9703, or an article for use by a religious institution of HTSUS item 9810.00.25.

The starting place for this analysis is that Note 1(r) to Chapter 44 excludes works of art of Chapter 97. That means the first philosophical question to be addressed is whether the above depiction of Mary is a work of "art" as opposed to a commercial craft. While artists, collectors, curators, and academics might argue that the definition of art is profoundly subjective, Customs does not work that way.

To be classifiable in Heading 9703, the item must be an "original" sculpture, ancient or modern. That excludes decorative items of conventional craftsmanship of a commercial nature. That means the random coconut carved into the head of a monkey is not likely to be "art" by this definition because the workmanship is conventional and commercial. Court cases have held that a statue is original if the artist exercised his or her own aesthetic imagination and artistic conception when creating the work.

It turns out that this image is basically a three-dimensional copy of images dating back to 1531. Stick with me here as I am way out of my comfort zone. In 1531 Mary appeared to Juan Diego. After the event, his cloak was miraculously imprinted with a version of the image depicted in the statue and also "countless" similar depictions. See, for example, this image of Juan Diego from Catholic.org:

And here is the "original:"

You can see that the imported statue does not show a lot of aesthetic imagination or artistic conception. Consequently, CBP declared it to not be "art." Also, there was no evidence presented establishing the identity of an artist who might have exercised some artistic imagination. That prevents classification in 9703.

What about 9810.00.25? This is an interesting question. The tariff item covers:
Articles imported for the use of an institution established solely for religious purposes:
Articles imported for the use of an institution organized and operated for religious purposes, including cemeteries, schools, hospitals, orphanages and similar nonprofit activities staffed and controlled by such institution:
Altars, pulpits, communion tables, baptismal fonts, shrines, mosaics, iconostases, or parts, appurtenances or adjuncts of any of the foregoing, whether to be physically joined thereto or not, and statuary (except granite or marble cemetery headstones, granite or marble grave markers and granite or marble feature memorials, and except casts of plaster of Paris, or of compositions of paper or papier-mâché)  

According to CBP, articles classifiable in this tariff item must be subject to a pre-importation sale to a religious institution. Here, it appears the item may have been sold to a church, but there is a failure of adequate proof. There is an inconsistency between the commercial invoice, which describes a 3/4 round statue, and the purchase order, which describes a fully round statue. Other documents do not list the church as party to the transaction. In addition, the entity listed as the importer is a re-seller of this type of merchandise and maintains an inventory of similar statues. IMports for re-sale would not fall within this tariff item.

As a result, Customs was not convinced that this particular statue was destined for use by a religious institution. Customs, therefore, rejected the possible classification in Heading 9810.

The statue of Our Lady of Guadalupe was, therefore, classified in tariff item 4420.10.00 with a 3.2% rate of duty.

Friday, February 24, 2017

Ruling of the Week 2017.6: Printers vs. Printing Machines

This one will be quick, for lots of reasons. Mostly, I don’t have much to add to the ruling other than a question. The ruling at issue is HQ H128416 (Feb. 9, 2017). It involves the tariff classification of digital wide-format ink-jet printer used to print and cut vinyl graphics for outdoor advertising and similar applications.

The printer is a combination of a printing machine and a cutting machine. As such, the competing tariff provisions are in Heading 8443 (Printing machinery) and 8477 (Machinery for working rubber or plastic). That is the sole question addressed in the ruling.

To resolve the classification, Customs and Border Protection applied Note 3 to Section XVI of the HTSUS, which states in relevant part:

Unless the context otherwise requires, composite machines consisting of two or more machines fitted together to form a whole and other machines designed for the purpose of performing two or more complementary or alternative functions are to be classified as if consisting only of that component or as being that machine which performs the principal function.

According to the importer, the principal function is printing, making the machine an article of 8433. Customs agreed, finding that the machine would not be used solely for cutting but that it might be used for printing without cutting. Customs examined the factors set out in United States v. Carborundum Co., 63 C.C.P.A 98, 536 F.2d 373 (1976), including physical characteristics, channels of trade, expectation of the ultimate purchaser, and recognition in the trade to ultimately agree that this machine is primarily a printer.

OK, so here’s my question: Why not consider this to be an 8471 unit of an automatic data processing machine? In other words, why is this ink-jet printer different than the ink-jet printer on my desk? The difference between 8471 printers and 8443 printing machines was discussed at length by the Court of International Trade in Xerox, which we reviewed here. The ruling states that these are “digital” printers. That means that they function in conjunction with a computer to translate digital data into signals to the printer. The only difference is that they print on large format plastic rather than on paper and they can cut the plastic. Once we determine that printing is the principal function, it seems to me that the cutting becomes irrelevant. What we know from Xerox is that large scale digital printing is still a data processing function. That would make these printers units of ADP machines of Heading 8471.

I am probably wrong for some factual reason not stated in the ruling. Heck, I may be wrong on the legal analysis. My analysis ends up with the potentially absurd result that all digital printers are ADP machines and 8443 printing machines would cover only Gutenberg-style presses and similar analog machines. It would be nice to know whether this was discussed and how it was decided that 8471 is not relevant.

Tuesday, February 21, 2017

Sunflower Seeds

I am falling behind on Rulings of the Week, but not for want of effort. I am keeping up with CIT decisions (more or less). The latest of which is Well Luck Co., Inc. v. United States. The case has to do with the classification of sunflower seeds that have been processed for human consumption. Some have been flavored with spices or other flavorings and dried. All are roasted and salted. The question is the tariff classification, which turns out to be trickier than you think.

The options are HTSUS item 1206.00.00, which covers "Sunflower seeds, whether or not broken." The applicable rate of duty is free and this is what the plaintiff claimed is correct. Customs and Border Protection liquidated the sunflower seeds in HTSUS item 2008.19.90 as "Fruits, nuts and other edible parts of plants, otherwise prepared or preserved . . . not elsewhere specified or included: Nuts, peanuts (ground-nuts) and other seeds . . . ." The applicable rate of duty is 17.9%, which is a significant deviation.

Think about everything you know about classification. In your heart, you already know the answer, don't you? Sunflower seeds are sunflower seeds. They are called out eo nomine in 1206.00.00 and that tariff item covers all forms of the sunflower seed. Easy. On top of that, as between the two, Heading 1206 is more specific in that is covers sunflower seeds. Heading 2008, on the other hand, covers other edible parts of plants not elsewhere specified or included, which is far less specific. Finally, since sunflower seeds are specified in 1206, they cannot be included in 2008.

All of that makes sense.

And yet, your conclusion (and mine) is wrong. Let's try to sort it out.

First off, do not jump to Relative Specificity under General Rule of Interpretation 3(a) until we fully explore the text as required by GRI 1.

Let's agree that if the processed sunflower seeds are classifiable in 1206, they are excluded from 2008. So that is the first question the Court of International Trade had to decide: are processed sunflower seeds "sunflower seeds" for purposes of Heading 1206? Getting the botany out of the way, there was no dispute that the imported product is the edible seed of Helianthus annuus, the common sunflower.

The problem for the plaintiff in this case is that the Explanatory Notes further define sunflower seeds of Heading 1206 as "minimally processed" and having general uses including for the extraction of oil and for sowing. These are not those seeds. They have been processed to add flavoring (even if just salt) and have been heated to an extent that they are no longer suitable for sowing. These are sunflower seeds with the specific use of being a food item. As a result, they are excluded from Heading 1206 and reamin classifiable in Heading 2008.

This conclusion is consistent with the Explanatory Notes. It is also consistent with the overall structure of the HTSUS, which moves from less processed to more highly processed materials. There is no doubt that the imported seeds are more highly processed than similar seeds for oil extraction or sowing. Thus, I don't have much of a problem with this result.

But, I think there is an analytical open question. A few Court of Appeals cases have held that the Explanatory Notes should not be used to impose a restriction on the language of the HTSUS that is not present in the text. See, e.g., Archer Daniels Midland v. U.S. Is that what happened here? Is there an answer to this issue that does not violate that principle?

There are no legal notes to Chapter 12 that exclude processed sunflower seeds. There are also no relevant Section Notes. Suddenly, this is a hard case.

The Court resolved this concern by noting that the meaning of the term "sunflower seed" is actually ambiguous. The lexicographical materials submitted to the Court indicate two distinct meanings. First, there are the raw and minimally processed seeds that remain suitable for oil extraction and for sowing. Those seeds may also be used for human consumption. Although not addressed by the Court, it is worth noting that Heading 1206 includes two statistical suffixes for sunflower seeds for "human use." The suffixes are not relevant to classification, but are indicative that some of the seeds of Heading 1206 are edible by humans.

The second meaning of sunflower seeds is in reference to the prepared snack food, which is no longer capable of general use. Having found two distinct meanings, the term is ambiguous and it makes sense and is legally correct to look to the Explanatory Notes to resolve the ambiguity.

That resulted in a substantial duty increase, which is why I suspect the Federal Circuit will let us know whether it agrees with this analysis. Given Archer Daniels Midland and the related cases, it is a close call on which reasonable judges might differ.

Wednesday, February 15, 2017

Who Moved My CAFTA-DR Cheese?

La Nica Products is an odd case. It involves a claim for preferential duty treatment under the US-Central America-Dominican Republic Free Trade Agreement, or CAFTA-DR. The merchandise is cheese from Nicaragua. On its face, one would think that an agricultural product like cheese would satisfy most rules of origin. But, that is not the issue in this case.

The problem here is the identity of the party making the claim. La Nica was listed as the importer of record and made the claim for duty-free treatment. After entry, La Nica, who had been listed as the importer of record, filed a Post-Entry Amendment ("PEA") attempting to change the importer of record to another party. Apparently, the other party purchased the cheese while it was en route. Customs and Border Protection asked La Nica for proof of the sale to the new alleged IOR and for a certificate of origin to support the CAFTA-DR claim. Plaintiff did not respond.

Customs denied the the PEA request and liquidated the entries as dutiable, thereby denying the CAFTA-DR claims as well. Plaintiff protested, and CBP denied the protests.

Under 19 CFR § 10.583(a), an importer may make a claim for preferential treatment under CAFTA-DR. The same regulation notes that a claim may be based on a certificate of origin from the importer, exporter, or producer. CAFTA-DR claims are, of course, subject to verification and can be denied if the Port Director determines that the importer has provided insufficient evidence to verify the origin of the merchandise.

What went wrong here? While the La Nica made the CAFTA-DR claim, it also told CBP that it was not the importer. Having sold the goods in transit, it appears that La Nica was no longer the owner of the goods at the time of entry and, therefore, was not the proper importer of record. Because the CAFTA-DR regulations require the the claim be made by the importer, La Nica is out of luck.

A couple things to remember about this. First, La Nica apparently never asserted that even though it sold the merchandise, it retained the right to make entry. If it retained a verifiable financial interest in the goods, it might have satisfied CBP's liberal interpretation of "owner" for purposes of making entry. That is not addressed in the decision.

The confounding issue here is that someone needs to be the IOR. Customs denied the PEA on the grounds that La Nica failed to prove the in-transit sale. That would seem to indicate a finding by CBP that La Nica still owned the merchandise and, therefore, was a proper importer. Alas, the CIT did not agree. Plaintiff has the burden of proof. In Court, La Nica continued to assert that it had made a successful sale of the cheese. Thus, the evidence before the Court indicated that La Nica was not the owner, which resulted in it being the wrong party to make the CAFTA-DR claim.

That is an example of free-trade whiplash.

Monday, February 13, 2017

Snuggies Are Blankets


Remember Snuggies? A few years back, they were part of the zeitgeist. Here is a reminder of exactly what is a Snuggie.

According to the commercial, Snuggies are wearable blankets with sleeves-like tubes. That raises an interesting classification question. Is it a blanket of HTSUS item 6301.40.00 (8.5%) or is it a garment classifiable in 6114.30.30 (14.9%)? Or, if it is neither, is it an "other made up article?" The Court of International Trade had to decide that question in Allstar Marketing Group v. U.S.

These are important questions in my world. I get that there is a lot going on in the larger world. Lately, I have been inspired and a little shamed watching lawyers who practice in areas affecting the actual lives and liberty of people, particularly refugees and others trying to entry the country. It made me proud to be a lawyer to see my colleagues set up shop at airports to provide assistance. Yesterday, I was at a meeting sponsored by HIAS Chicago at which an immigration lawyer offered pro bono assistance to arriving refugees. Occasionally, we get to undertake projects for individuals and worthwhile organizations, but that is uncommon in my practice. Here is an example of which I am still proud. Happily, I am currently working on a project that I think will serve the larger public, but it is still in the early stages and will not have the direct, personal impact that we have seen from the good work of immigration lawyers.

Now, back to the wearable blanket.

The evidence presented to the Court of International Trade shows that the importer referred to Snuggies as blankets in communications with the producer-supplier. The marketing materials show people using Snuggies in a variety of settings both in the home and outside, including on an airplane and at a sports stadium. Snuggies have sleeve-like tubes attached to allow users (or are they wearers?) to use their arms freely while still in the comparative warmth of the Snuggie.

The Court found that it had all the information necessary to resolve the matter and that there were no material questions of fact in dispute. That means, the only question is whether Snuggies fit within the common and commercial meaning of the tariff terms "garments" or "blankets." Under Note 2(a) to Chapter 63, if Snuggies are classifiable as garments, they cannot be classified as blankets or other textile items.

Tariff item 6114.30.30 covers "Other garments, knitted or crocheted: Of man-made fibers: other . . . ." There is no dispute that Snuggies are knitted of man-made fibers. The question is, are they "garments?" Looking at the structure of Section XI, the Court found that the items specified in Headings 6101 through 6114 are "garments," which is interchangeable with "apparel." Prior court decisions indicate that apparel is articles that "are ordinarily worn--dress in general." These are "clothes and covering for the human body warn for decency or comfort" as well as adornment. The government argued that because Snuggies are worn for comfort, they are apparel. The Plaintiff argued that because they are not worn for decency and adornment, they are not apparel.

The Court focused on the fact that apparel is "ordinarily worn." Specialized items covered by the apparel provisions include aprons, smocks, clerical vestments, scholastic (and presumably judicial) robes, and certain sports apparel. According to the Court, all of these are more akin to apparel than are Snuggies.

The Court then considered the use of the product. For why, see here. Physically, Snuggies are one-size-fits-all items and are open in the back. These characteristics do not resemble the kind of apparel that is "ordinarily worn." Furthermore, Snuggies were "inspired" by prior existing products called "Slankets" and "Freedom Blankets," both of which were marketed as blankets. Finally, the sales and marketing literature refers to the Snuggie as a blanket. According to the Plaintiff, that makes Snuggies improved blankets.

Blanket is defined as a warm covering used especially on a bed or a similar article used as a body covering for warmth. The Snuggie was designed and marketed as a covering for warmth. Since "blanket" is an eo nomine tariff description, it includes all forms of the article, including improved forms. From that, the Court was able to find Snuggies to be blankets (with sleeves). The addition of sleeves, according to the Court, did not so modify the nature of the article to make it something other than a blanket. The sleeves are incidental to the warming cover that is a Snuggie.

Thus, the plaintiff wins (this round) and Snuggies are classifiable as blankets of 6301.40.00.

Sunday, February 05, 2017

Ruling of the Week 2017.5: Copper Scrap

There are a number of Chapter 98 tariff items that permit partial duty exemptions for items of the United States that are sent abroad and returned to the United States. Given the current trade rhetoric, it might be worth explaining why that is the case. After all, why give a benefit to companies that send goods abroad for further processing? The short answer is that the duty exemption encourages the use of U.S. origin materials in manufacturing abroad. After all, if there is going to be manufacturing abroad, the U.S. should encourage that it take advantage of U.S.-origin components and materials. The alternative is to manufacture abroad entirely from foreign components.

The HTSUS item at issue in HQ H281950 (Jan. 26, 2017) 9802.00.60, which provides a partial duty exemption for:
Any article of metal (as defined in U.S. note 3(e) of this subchapter) manufactured in the United States or subjected to a process of manufacture in the United States, if exported for further processing, and if the exported article as processed outside the United States, or the article which results from the processing outside the United States, is returned to the United States for further processing . . . .
To qualify, the metal article must be manufactured in the United States. The question presented in this ruling is whether scrap metal collected from industrial production in the U.S. is "manufactured in the United States." The scrap metal at issue here is copper. The question is potentially complicated by the fact that some of the original copper was domestic in origin while some was originally foreign. Some of the scrap will be derived from production processes. Some will just be collected in the form of obsolete U.S-origin wire.

From exportindia.com

 The tariff does not define "manufactured" in this context. In prior rulings, CBP has held that metal is manufactured when it is subject to operations such as "splitting, annealing, milling, rolling, brushing, and leveling." Here, the industrial scap results from the application of those manufacturing processes to copper. As a result, Customs held that the scrap was also manufactured in the U.S.

Customs has also held that the process of making metal into U.S.-origin products is sufficient manufacturing to allow used, obsolete products to be considered manufactured in the U.S. [Note: I realize that seems self-evident, but that's the fact of the matter.]

Consequently, in this case, all of the goods, when re-entering the U.S. after further processing abroad, qualify for the partial duty exemption. There are, of course, documentation requirements. If you are going to try this, look at 19 C.F.R. 10.9.

IKEA Scope Rehearing Denied

Apparently there is some kind of festival of TV commercials starting in a few minutes. I understand it will be punctuated by grown men playing football for millions of dollars. Consequently, I will make this quick.

Consistent with my New Years Resolution to cover scope and other trade-related issues that closely impact customs compliance, here is a note on IKEA Supply AG v. United States. This is a request for a rehearing of a prior decision in which the Court of International Trade held that certain IKEA towel bars are within the scope of the antidumping and countervailing duty orders on aluminum extrusions from China. The bars are indisputably aluminum extrusions. In each box, there is mounting hardware that does not constitute aluminum extrusions, but which, according to Commerce, are fasteners. Finished goods are excluded from the scope of the orders. In a scope determination, Commerce held that because the finished towel bars are extrusions and that the only non-extrusion parts of the kits are fasteners, the bars fall within the order. In the first IKEA case, the Court of International Trade affirmed that decision.

This opinion involves an effort by IKEA to have the court reconsider its prior decision. Motions to reconsider are not easy to win. The moving party needs to show that there was an intervening change in the law, newly discovered evidence, clear error, or a need to prevent a manifest injustice.

The CIT did not see any of those reasons here. IKEA's first argument was that the Court failed to consider additional non-extruded components of the towel bar sets. The CIT basically said, "too late." These components were not discussed anywhere in the prior record or court proceedings. Thus, the Court would not consider them now. Moreover, there is no reason to believe that IKEA was not aware of these facts.

The second, and more interesting point, is that the CIT did not have the benefit of the CIT decision in Meridian Products LLC v. United States. In that case, another judge of the CIT held that Commerce needs to consider all of the non-extruded part of the kit, including those it considers to be fasteners. Under that test, there is a likelihood that IKEA might have won.

Sadly for IKEA, but legally correct, CIT judges are co-equal and the prior decision of any one CIT judge does not bind a subsequent judge. Technically, one judge does not even bind himself or herself in a later unrelated case. Thus, the intervening change in law raised by IKEA is really not a change in the law, until the Federal Circuit speaks on the issue. Then, it will be a change in the law.